All Forum Posts by: Aaron Thivierge

I am sincerely grateful for all the responses.  There are some creative solutions mentioned that I am considering.  Thank you all once again.  

@Jon Klaus

@William Price

@Mark Elliott
@George Allen
@Judy Parker
@Jordan T.

@Travis Frenchak

@John D.
@R J Drahcir

@Dana Whicker I would certainly do the due diligence and have septic inspections done during the inspection phase.   Thank you for your contribution.  I truly appreciate your words of wisdom.  The septic on that many units is just a risk that I can not accept at this time (most likely a product of my inexperience, but I would not sleep well at night with this variable).  Where in Jacksonville do you have rental properties ?  

@Doug N. That is brilliant:  writing a letter of intent with a full description of WHY I was offering that lower figure would be exactly the approach I would take at this moment if I was going forward. In fact, last night I was conflicted with this decision. I started to write that letter.  But, my "gut check" doesn't sit right.  The numbers look great on paper, but the risk is too high for me to go forward.  I will not be pursuing this property any further.  Your letter suggestion is written down in my real estate journal.  This is a tactic I will implement in the future.  Furthermore, I loved your Poe statement about a problem property and creative solutions.  It is an excellent mindset.  

@Fred Grant  You are correct.  Saving the $80,000 at the closing table does not imply that there is $80,000 sitting in escrow waiting for that project to begin. The money has to come from somewhere.  I have discouraging images in my mind of the well drying up and 16 people being without water for 2 days…. this alone is enough to deter me from this property purchase at this time (again, my inexperience at this time and lack of intestinal fortitude for that high a risk).  

@Al Williamson  I love your enthusiasm and vote of confidence.  However, after sleeping on this over night, I do not have the risk tolerance for such a potentially expensive repair and inconvenience to the tenants to pursue it any further.  I did look up your profile and see your business. I would be interested in reading more of your tenant maximizing profit strategies.   Thank you for your contribution to this thread.  

Finally, thanks again to all 4 of you who commented and gave suggestions.  I knew I would find a candid response on BP.  This website is like a sounding board for ideas, and that is invaluable to me.   
I am going to pass on this deal due to the logistics in play at this time concerning the details of the sewer/ water/ well.  
Have a powerful sales day everyone.  

Hi fellow BP nation, I would like your opinion on this scenario.  
I am in discussion with a seller right now on an 8 unit property: (4) duplex's.  The numbers work, and are as follows:
Purchase price:  $340,000
25% down: $85,000
3% closing costs: $7,700
Property Tax/ yr: $1,400
Insurance/ year:  $1440
35% of rent allocated to property management (myself), Repairs, maintenance, vacancy
Mortgage: 5% interest 30 years local lender.  P/I: $1,369/ month
Currently 100% occupied, with 2 long term tenants: the remainder are 1 year leases. 

These are 2 bedroom, 1 bath units that rent for $628/ month each unit.  The property is very clean, no obvious deferred maintenance. Knock out roses, drift roses, crepe myrtles planted around the homes.  Parking is adequate, and taxes are great.  Location is 15 minutes from my primary residence.  
Initial out of pocket costs: $92,650
Monthly expenses:  $3,363
Monthly rent :           $5025 
Cash flow: $1,662/ month  

HERE IS THE PROBLEM:

In the city of Jacksonville, Fl.,  we have both city water and well water. We have both city sewer and septic systems.  All 4 duplexes are on 4 septic systems and 1 well.  There is a push to convert all properties eventually to city and do away eventually with septic systems and wells.   The conversion is at the cost of the homeowner, and can be mandated by the city to comply.  A recent voluntary conversion in our neighbor cost the home owners $18,000 per home to tie into city lines.  This was voluntary, but at some point in the future, it could be mandatory.
I called our local water/ sewer provider (JEA) and spoke to the director of water counter planning.  He told me there are no immediate plans to mandate that area where I am considering investing to city water/ sewer. He told me it could happen 10 years from now or never…there is no way of knowing.  
I talked to my realtor this morning and mentioned why don't we just offer $260,000 (as it would be $80,000 to convert all 4 duplexes/ 8 units).  My realtor presented that informaly to the listing agent, and the agent was "suggesting" that we should go ahead and submit it in contract as the sellers are "eager" to cash out their investment properties (the sellers are a brother and sister who inherited this property and others in September last year when their mom died).  
Now, I am getting cold feet all together.  The homes are great.  The cash flow is great.  But, the utilities (specifically if there is a well problem or septic problem that presents OR if the city of jacksonville mandates a conversion).  
Furthermore, the due diligence (septic inspections X4, well inspection, home inspections, etc..) could be close to $3,000.  
I am seeking thoughts, ideas, comfort, criticism, any words of wisdom to help me commit or walk away.  
Thank you all in advance.  

why not invest locally?

Matthew, are you looking to wholesale it, buy and hold it, value add and sell it?  As a new investor myself, I just passed on (2) triplex's that were awesome cash flowing. They were also in a D neighborhood. I thought, how bad could it be… ?  So, I drove there and just watched the comings and goings while walking the streets local to that property. 

  I realized then that the work needed to manage individuals who had such different lifestyles and ideas of "quality" of life would supersede any financial gains on paper.  Furthermore, collecting those rents may or may not be consistent, so the numbers could be more theoretical than real life.  

As a new investor, the "headache" factor may be overwhelming for a 1st deal.  
I would encourage you to drive there, walk around, talk to folks and see if that is the community in which you'd like to invest. 

Thank you all for your input.  I need to look at other apartment buildings in the area at similar rents to see if they have window units or CH/A.  It's good to know it's not a deal breaker, but rather keeping up with the local market price point and associated expectations.  I appreciate all the feedback.  

Good morning, all. I ran the numbers on a 4plex locally that just came up for sale yesterday, and it cash flows at the asking price. My number one hiccup is the window units in the apartments. It is one building, 4 units: 2/1 's that rent for $550/ each 100% occupied. Running the numbers, it should cash flow $400/ month allowing for PITI, vacancy, repairs, Property Management.

I heard a podcast recently where one investor would not look at apartments unless they had central heat/ air.  What is everyone else's opinion on this variable? thanks for the input.  

You did not mention if you are putting any ernest money into the equation.  That should help alleviate some of the buyers (and their attorney's) concerns.  Put some skin in the game, and see if the family on the other side of the table is appeased.  
However, if you are not willing to put some ernest money into escrow,  I too would be leery of dealing with you (as a wholesaler tying up the property).  

@Sheena Varghese I 100% concur with the consensus to move away from this seller and particular unit.  The entire format of this deal doesn't pass the sniff test.  Also, you would probably want to sell that "triplex" at some point down the road…and your exit strategy would be compromised by the unpermited work on this building.  
Also, did I understand correctly that your real estate agent is still encouraging that it is a good deal?  If that is the case (which is 100% opposite of what other investors are telling you on this forum),  maybe its time to consider another realtor...  Just my early morning thoughts.  

Ian, first of all, this is a good problem to have. Congratulations!  I am in favor of what the consensus is describing above. 

Is it possible to value add in another way? are the units separately metered and the tenants paying all utilities?

When does the unit re-inspection come up for the section 8 tenant? You can not change their rent during this contract, but consider raising the rent after the lease is satisfied minimizing turn around time while maximizing the improvements. I know here in Jacksonville, Fl the monthly rent allocations are very good for section 8 tenants. 

 I would encourage you to attend the free section 8 monthly workshop for the local housing authority in your area.  They probably have a pay schedule posted somewhere with what they pay for a particular unit: studio vs. 1 bedroom vs. 2 bedroom, etc... maybe you are not maximizing the section 8 potential (just thinking out loud here).